Ask FERF (financial executives research foundation) about ... Board Committee Charters.

• Author: Sinnett, William M.
• Position: Resources

Financial Executives Research Foundation has received numerous requests from FEI members for examples of audit and compensation committee charters. These requests are a direct result of new listing standards issued by the Securities and Exchange Commission (SEC), New York Stock Exchange (NYSE) and Nasdaq.

Last November, the SEC approved the NYSE's proposed new corporate governance listing standards. (See the NYSE Web site, "Corporate Governance" page under "Listed Companies:" www.nyse.cocom/pdfs/ finalcorpgovrules.pdf.)

Recent NYSE listing standards go beyond the SEC-mandated requirements, "Standards Relating to Listed Company Audit Committees," of April 9, 2003. (See the SEC Web site under "Final Rule Releases." www.sec.gov/rules/final/33-8220.htm.)

Also, last November, the SEC approved Nasdaq-proposed new governance listing standards. (See the Nasdaq Web site, "Recent Rule Changes" page under "Inside Nasdaq:"www.nasdaq.com /about/Corp_Gov_Summary.pdf.)

The Nasdaq Web site also provides a link to the official notification in the Federal Register: www.nasdaq.com/about/ SECApproval%200rder_34-48745.pdf.

Both the NYSE and Nasdaq standards are summarized in KPMG's November 2003 issue of "Defining Issues." (See www.kpmg.com/Rut2OOO_prod/Documents /9/19656%20NovO3_24.pdf.)

Among other items, the new NYSE listing standards require companies to adopt corporate governance guidelines and make them available on their Web sites. For example, General Electric Co. (GE) provides a "Commitment to Governance" Web page: www.ge.com/en/commitment/governance/governance.htm.

NYSE standards also include additional requirements for a company's audit, compensation, and nominating committees.

Audit Committees Under both NYSE and Nasdaq requirements, audit committees of all companies (except those that list only debt securities and foreign private issuers) must have at least three members, all of whom must be independent directors. Both provide specific criteria for "independent directors," and the requirements are very similar.

The NYSE requires audit committees to have a written charter that states the committee's purpose, requires an annual performance evaluation and sets out the committee's duties and responsibilities. GE is listed on the NYSE. Its "Commitment to Governance" Web page provides a link to its audit committee page: www.ge. com/en/spotlight/commitment/g overnance/spot 10302002auditcommittee.htm. This page also links to GE's Audit Committee...